The Logistics Institute November, 2000

Agenda  Introduction  Company Overview  Industry Analysis  Competitive Strategy  Results  Questions

Company Overview

About J.B. Hunt Transport... J. B. Hunt Transport Services, Inc. is the nation’s leading truckload transportation logistics provider, headquartered in Lowell, AR. Hunt operates:  10,800 company-owned tractors  45,000 trailing units  12,000 professional drivers  $2 billion in revenue (2000 estimate)

About J.B. Hunt Transport... Services are offered in:  Truck  Truck - Serves the full truckload, dry-van, freight market utilizing company-owned dry van trailers  Intermodal  Intermodal - Provides premium intermodal service to customers  Dedicated Contract Services  Dedicated Contract Services - Asset-based solutions engineered to serve specific customer’s transportation logistics needs  Logistics Management  Logistics Management - Web- enabled third-party logistics services through Transplace.com

Mission Statement TO BE THE BEST SERVING THE BEST We will forge long term partnerships with key customers that include supply chain management as an integral part of their strategy. Working in concert, we will drive out cost, add value and function as an extension of their enterprise.

 Safety First  Pioneering  Highly Productive Company Values

Truck Where it all started over twenty years ago. J.B. Hunt delivers a million truck loads a year, travelling nearly 700,000,000 miles to do it.

Intermodal J.B. Hunt established its first intermodal partnership with the Santa Fe Railway in Today, Hunt works with nearly every North American railroad.

Dedicated Contract Services Growing at 50% per year, J.B. Hunt develops customized solutions to customer’s specific transportation logistics needs.

Industry Overview

J.I.T. Economy

S h r inking Increasing Demand/ S h r inking Labor Pool Jan-94Jan-95Jan-96Jan-97Jan-98Jan-99Jan Truckload Monthly Loads Index 1 (left scale) Available Worker Pool 2 in Millions (right scale) 1 Represents number of loads hauled by truckload segment of the trucking industry 2 For age group Sources: American Trucking Associations, Bureau of Labor Statistics

Industry Analysis Michael Porter 1 of the Harvard Business School developed a “Five Forces” model to study industry environments. Those five forces are:  1.The threat of entry by new competitors.  2.The intensity of rivalry among existing competitors.  3.Pressure from substitute products.  4.The bargaining power of buyers.  5.The bargaining power of suppliers. 1) Michael E. Porter, Competitive Strategy - Techniques for Analyzing Industries and Competitors (New York Free Press, 1980)

Industry Analysis Low Entry Barriers Scale Diseconomies

Industry Analysis Low Entry Barriers Scale Diseconomies Fragmented Market Exit Barriers High Growing Demand

Industry Analysis Low Entry Barriers Scale Diseconomies Fragmented Market Exit Barriers High Growing Demand Fragmented Market Buyer Strength Low Switching $$ Easy to use many suppliers Vertical Integration

Industry Analysis Low Entry Barriers Scale Diseconomies Fragmented Market Exit Barriers High Growing Demand Fragmented Market Buyer Strength Low Switching $$ Easy to use many suppliers Vertical Integration Supplier Strength Driver Shortage

Industry Analysis Low Entry Barriers Scale Diseconomies Fragmented Market Exit Barriers High Growing Demand Fragmented Market Buyer Strength Low Switching $$ Easy to use many suppliers Vertical Integration Supplier Strength Driver Shortage Trains Parcel/LTL

Industry Analysis  The truckload market is highly competitive.  Industry competitiveness makes it hard to raise prices and earn profits.  Here is J.B. Hunt’s experience in the ‘90s:  #1 Cost - Driver Wages up 46%  #2 Cost - Fuelflat, recently up  #3 Cost - Equipmentup 36%  Other costs…up similar amounts  J.B. Hunt Ratesup 6%  Postal Ratesup 36%

Competitive Strategy

 Stabilize the Driving Workforce  Change the job: regular routes, intermodal, dedicated  Pay an attractive wage  Re-engineer processes to gain cost efficiency and service improvements  Operation TC  EAGLE  Re-invent the Industry  Collaborate with competitors  Create economies of scale  Balance power with suppliers  Drive real value

Regular Routes  Drivers, like most people, want a regular home-life  Number one reason for driver turnover  Much study and research was conducted to regularize random freight  J.B. Hunt developed expertise in identifying and leveraging repeating network patterns  Studies included:  Hub and Spoke simulations:  Validated intermodal model  Told us not to pursue a full implementation  Zone simulations: Picket Fence

Design Expertise

Regular Routes Four Corners Picket Fence

Intermodal  Intermodal driving jobs are attractive  Home nightly  More regular working hours  Steadier pay  Unique trailing equipment (stackable high-cube) created entry barrier  Intermodal increases driver productivity 250% .6 loads per driver-day to 1.5 loads moved per driver-day  Intermodal offers cost savings to customers and to providers

Intermodal Containers  Containers separate easily for a double-stacking (3)  Containers are custom-built to be used with the top-pick lift cranes (2)  Containers are easily distinguishable from OTR trailers by the orange guard on the bottom (1) and the marking of JBHU on the trailer (4)

Intermodal Network

Intermodal Growth

Dedicated Contract Services  Customers want better service at a lower cost  Drivers want a more regular job  Dedicating resources to a particular customer does both:  Design cost out and service in  Driving job has more predictability and “home time”

Dedicated Project Dedicated Customer

Dedicated Service Results On-Time Delivery %

DCS Growth $0 $100 $200 $300 $400 $500 $600 $ est.2001 fcst. Millions

Driver Compensation J.B. HUNT RAISES DRIVER WAGES 33%! The demand still exists for random drivers. All freight can not be run on the rails, engineered into a dedicated solution, or regularized in some other fashion. A cross-functional team of J.B. Hunt managers was convened to study how to create the best driving job in the industry. Double the time-off typically granted! Guaranteed get-home! Instituted paid training! Generous uniform allowances!

Compensation Change Results

Collisions per Million Miles

Compensation Change Results

Operation TC  TC: Trailer - Container  Through most of the 1990’s, Truck and Intermodal operations were run together:  Common trailing equipment  Convenient for customer  OTR drivers pulled both types of loads

Operation TC 1) Truck Load In 2) Intermodal Out

Operation TC  Intuition suggested there were synergies to this  Studies showed the synergies to be rather limited  Imbalance in markets causes equipment repositioning  “Trapped” in COE  Unable to fully capture rail economic benefit/capacity potential  Hard to manage  Decision was made to segregate the two operations:  Balance issues would be corrected  Equipment conflicts would be eliminated (conventional)  Rail PTE would be reduced  Capacity increases from more double-stack opportunity  Management would be less complex

EAGLE  As J.B. Hunt grew during the 90’s from 500 to 10,000 tractors, it became increasing difficult to manage the growing J.B. Hunt network

J.B. Hunt Network

EAGLE  Transportation has a few simple rules:  Keep the assets moving  Don’t run empty  But how do you find your way through such a maze?  EAGLE  Economic Analysis and Global Lane Engineering EA G LE

E.A.G.L.E. Global Network Solution Maximize Profit Meet Commitments Balance the Network Inputs MARKET RATES HISTORICAL VOLUMES HISTORICAL VOLUMES ESTIMATED ACTUAL COST ESTIMATED ACTUAL COST CUSTOMER COMMITMENTS CUSTOMER COMMITMENTS GROWTH Outputs PRIORITYPRIORITY Rate, Volume Recommendation RECOMMENDRECOMMEND REPLACEREPLACE EAGLE Process

Re-Invent The Industry  J.B. Hunt developed an expertise in managing transportation logistics  In 1999, Hunt approached other major truckload carriers with idea of combining logistics operations to tap various economies of scale  Together, these carriers could:  Increase operating efficiency  Come closer to parity with both supplier and buyer power  Provide real value  On July 1, 2000, Transplace.com was launched:

Collaboration  The “new economy” - Abundance versus Scarcity:  Joining a network creates external benefit for existing members  Competing products must overcome installed base  “Complementarities” enhance network benefits Percent of DVD titles at Blockbuster Probability Customer buys a DVD player Tipping Point

Economies of Scale

Large Network + Design Expertise

Economies of Scale Real Value is Created

Collaboration Percent of Freight Managed by Transplace.com Probability Customer Chooses Transplace.com Tipping Point

Collaborative Strength

Size Parity  JBHT is largest owner at 10,800 tractors (vs. 230,000)  Size multiple increase by 21+ ($2B looks like $42B)  Strengthened relative to suppliers… (Daimler Chrysler $110B)  Strengthened relative to customers... (General Motors $185B)

Results

The Final Tally  Stabilized the Driving Workforce  Regular routes, Dedicated and Intermodal driving jobs created  Pay an attractive wage to attract high-performing drivers  Re-engineering processes to gain cost efficiency and service improvements:  Operation TC  EAGLE  Re-inventing the Industry  Collaborating with competitors  Creating economies of scale  Balancing power with suppliers  Creating sustainable, real value

Continued Growth

Results A 1999 rating of America’s most admired companies in the trucking industry by FORTUNE Magazine ranked J.B. Hunt: #2 in Quality of Management #3 in Quality of Products/Services Offered #3 in Innovativeness J.B. Hunt received an overall ranking of #5 in the trucking industry and the only full truckload carrier in the Top Ten!!

Third Quarter 2000 Results

Thank You!

J.B.Hunt Cost Pie Equipment: 13%